Microchip Technology Incorporated (MCHP) Earnings Call Transcript & Summary

So good morning, everybody. My name is Raji Gill. I'm the global semiconductor analyst and autotech analyst here at Needham & Company. We're very pleased to have Microchip presenting with us. Today, we have Ganesh Moorthy, CEO of Microchip; as well as Eric Bjornholt, Chief Financial Officer. This will be a fireside chat anybody that has any questions, feel free to type in the questions on the upper right-hand side of the screen, and I'll relay those questions. Before we get started, I wanted to pass it over to Ganesh first for some opening remarks.

Great. Thank you, Raji, and good morning, everybody. So just to correct, Raji, I become CEO on March 1, so in the current vernacular I'm CEO-elect, I guess, is the way to put it?

Yes, that sounds fair.

All right. So before we begin, I want to remind you that in today's fireside chat, I will be making some projections and other forward-looking statements regarding the future financial performance of Microchip and these statements involve predictions and the actual results may differ materially. I refer you to Microchip's filings with the SEC regarding some important risk factors about the company. So with that, I'll provide you with a brief update about where is the business environment since our earnings call in November and then some of our conference presentations we made in early December. Let me first talk to the business environment itself, and that environment has continued to strengthen. The pace of bookings that we have seen since September really has continued to strengthen further. We've received bookings both for short term but also into the future quarters. And in the December quarter, we achieved all-time record for bookings as well as our backlog was an all-time record as well. And remember that these bookings and the backlog are all for what is shippable over the next 12 months. So these are not shippable just in this quarter alone. So please don't equate the record bookings and record backlog to record revenue, at least not yet. And having said that, the backlog for the March quarter is quite strong. Second is around capacity constraints. You've seen a lot of news reports about it. Our business is feeling the broad-based capacity constraints on all fronts from our manufacturing supply chain. The last public numbers we've reported was that we performed 39% of our wafer fabrication in-house, 47% of our assembly and 55% of our test in-house. With the strong levels of -- with the strong demand and the low levels of inventory, both at Microchip and in the distribution channel, we saw constraints in just about every internal and external factory over the last several months. And we have started ramping our material inside our internal factories in September. We also began to invest in capital for our factories to expand capacity and around the same time, we began to work with our supply chain partners to receive more allocation from their wafer foundries, assembly and test factories, et cetera. And so while we will have a lot more internal and external capacity in the March quarter since we've had multiple months to ramp, we do believe that the wafer fab as well as the back-end constraints are here to stay with us for a good part of calendar year 2021. Third, on lead times, with strong bookings for the near-term as well as for longer-term delivery, all the way out to December of 2021, a lot of the available capacity on a large number of products is booked [ out. ] And therefore, we've seen a broad-based lengthening of lead times. Now lead times are very much product specific and each situation is a bit different. So based on where the capacity constraints are and where the product is built, our lead times vary anywhere from less than 4 weeks to as much as 40 weeks. And there's really not an average lead time and providing a number there would be misleading. And so that's kind of the range of where things are running today. We've taken 2 actions in response to this business environment and what's going on. First, in the middle of December, we changed our cancellation and pushout terms with our customers and distributors. The standard terms used to be that an order cannot be canceled or pushed out once it goes within 45 days of shipment. We changed these standard terms to 90 days. So nothing cancelable inside 90 days or can be pushed out in 90 days, effective the first of this year. We felt they had something in this time frame that they wanted to move up out. And we did not see anything unusual in terms of cancellations or pushout, which meant that the backlog was real and wanted by the customers. And that gives us a solid backlog for the March quarter that cannot be canceled or pushed out. But it allows us to now batch process our orders and use our manufacturing assets efficiently knowing that whatever we bill is going to get shipped. The second action we took was a letter we sent to our customers on January 4. We didn't put it on our website so that we didn't have the investor community necessarily wanting to read it and misinterpret it. But we wanted to inform customers about the business environment. And we also informed them that there was a broad-based set of cost increases we were seeing and some more aggressive commercial terms from our suppliers. And that we will be passing on these cost increases to our customers through a broad-based pricing increase. The increase is different on different product lines, depending on what we're experiencing, and there could be certain products, certain customers that are exempted for various reasons, example, if they have a contract with us. And although we didn't post that on our website, it only took 48 hours for it to show up on the web. So we've decided we're going to cover it here because it's in the public domain anyway. With that, I'm going to pass it back to Raji for the Q&A session. Thank you.

Yes. Thank you, Ganesh, for that update. So in terms of just the capacity constraints, you had mentioned that for the remainder of calendar '21, both at the kind of the wafer side and also just across the supply chain, what specifically within kind of product line end market that's driving these capacity constraints?

So the demand we're seeing is quite broad-based. It's obviously sharper in the increase in those areas that had weakness during the COVID downside in the first half of the year. So on a relative basis, automotive, industrial and consumer appliances and all that are coming off of a lower base and increasing sharply. But I would say, at this point, the demand is pretty broad-based. It's all end markets, it's all regions of the world that are driving it.

Yes. There's been a lot of chatter in the automotive market that there's significant chip shortages that is affecting production for a lot of these vehicles. I know you are not a huge auto player, maybe getting 15% or so, 20% of revenue. But these "cyclical" sectors that were affected because of COVID earlier last year, they appeared to be rebounding fairly sharply and then putting a lot of pressure. So is that affecting your upside in any of your kind of your internal revenue plans and forecasts? Have you kind of adjusted for that potential those capacity constraints on your kind of top line?

Yes. So the only guidance we have is for the December quarter guidance, and we knew when we provided the December quarter guidance, what some of the constraints were that we were going to be affected by here in this -- in the quarter that just finished. And some of that constraints are continuing on. And so yes, there is more demand than what we're able to ship to in the December quarter, in the March quarter. And in that sense, we could do more if we had more capacity. But it sits well within the guidance that we had provided for the December quarter.

In some of the recent presentations, you called fiscal Q1 2021 as kind of the bottom of your cycle. Given the trends in kind of 5G, IoT, data center, AV, AI, do you see a change in kind of duration of the cycle at all?

So I think we called the September quarter, which is our fiscal Q2, as the bottom of this cycle. So that's what we updated. And we called that bottom because we saw the COVID-driven effects starting to reverse. We saw some of the pent-up demand from COVID, but also as much pent-up demand from the tariffs. And what that did to our business in 2019 and parts of 2018 and the resultant strength in bookings and backlog in all the geographies, all the different end markets, et cetera. Now I can't recall what the length of this cycle is going to be. But clearly, there are major trends that are secular trends that are helping to drive the business beyond what is happening here short term as business responds. And those have been the ones we've been public about, which are the rolling out of the 5G infrastructure, the continued growth of IoT, but in particular, the industrial IoT kicking in the growth in the data center and computing parts of the business. The electric vehicle and the conversion to electric vehicle that is starting to accelerate further for various reasons, consumer as well as regulatory reasons. Autonomous driving, but more importantly, the driver assists part of it and what that's doing for automobiles. And last but not least is in artificial intelligence and machine learning and what that represents. So these are, I would say, 5, 10-year type of growth trends that we expect will provide a significant target for us, combined with our approach of selling complete solutions. We call that total system solutions for where we are. And then in the near term, medium term, what perturbations that are outside exogenous factors there may be we really don't control.

And you talked about bookings and backlog that you're kind of at record levels in terms of the backlog and bookings. If you look at kind of the March quarter and with orders being placed and delivery scheduled, kind of any views on how the order patterns have changed over the course of -- over the several months? And the backlog for the current quarter is stronger, I believe, than the backlog for the last quarter. Can you describe your customers' view on their own businesses as well as some customers believing that they're not going to be able to get supply? How is that kind of impacting -- the supply constraints impacting the order rates and the backlog?

So if I think back to the June quarter time frame, right, most customers didn't know what the demand is going to be, didn't know what to plan for, and so most of them are very pessimistic. And we would occasionally see expedited orders as some of the COVID segments that were helped by COVID came in. And we actually put a customer letter out in early July, telling customers, hey, we couldn't respond as fast as you would like in some cases, so please give us the backlog visibility. Some did, some did not on what they did. And as that accelerated into the latter part of the September quarter and into the December quarter, I think many customers got caught flatfooted. They haven't placed the backlog. There wasn't enough inventory to be able to ship what they needed as quickly as they needed. And so lead times began to be an issue for them or they've ended up having to be expedited for and all that. So in that sense, I think customers have now recognized that there isn't infinite capacity to support them. They need to provide us with the backlog. And more importantly, as constraints are showing up, they need to give us longer visibility, which is why the bookings are, in fact, strong, and they're out in time as well, so we do have visibility well past the March quarter. I mean usually, we recognize backlog that we talk about for 12 months. And so we can see backlog placed on us all the way through the December quarter of 2021. Obviously, more backlog is there in the closer quarters, and then it begins to fade out, but we're seeing unprecedented backlog visibility, both in the first half of the year, but also going out farther into the year.

Now given your tenure at Microchip, would you say this is kind of very unique in the history of the company? Is there any -- is there another cycle or a point in time you can highlight? Or is this -- stands by itself in terms of the visibility to the backlog?

It is probably the most unique point of how much visibility we have, how much backlog is in place for us in my 40 years in this industry, let alone the 20 years at Microchip. So it does reflect, I think, that combination of both demand factors coming back, the rebound from COVID, the tariff and trade issues, had pent-up demand. So there's a lot of pent-up demand. And at the same time, a confluence of factors driving the supply and supply constraints, which I talked about in my last conference call as well. So you put those together, and this is unprecedented in terms of what we're seeing for the amount of backlog, for the amount of backlog coverage we can see for the March quarter as well as for succeeding quarters this early.

And obviously, the topic of kind of double ordering, double booking is going to come up, given kind of these long lead times, we've seen instances where there has been double ordering, not just with Microchip, but in the industry. How do you, I guess, mitigate that potentiality? What quote systems that you're putting in place to get better visibility in terms of that same customer ordering maybe twice as many components?

Yes. It's a great question. So I think one of the things we did to dissuade customers from placing orders that they didn't need was to extend the noncancelable window -- noncancelable and nonreschedulable window. So a year ago, that was at 30 days. About July, we took it to 45 days. And on January 1, we took it to 90 days. And we gave people time. Each time we extended the window, we said, here's 2 weeks to go figure out what you really need and push out what you don't need. Because once you're within the window, you're committed and you don't have a choice with respect to that. And we did that. And we didn't see any meaningful change in that, which gives us some confidence that it's solid and it's required for what they have. And that 90-day window will continue for a while for us to make sure that as we get through the cycle. Now separate from that, half our business is distribution. We have visibility into distribution inventory. And we know what they're carrying, and they report to us on a weekly basis. So that half of the business we know inventory, and we know inventory there is low -- has been low for some period of time. And then the final thing is that at times of constraint, we're barely able to get enough for what demand is let alone what people want to do in terms of building inventory. So is there an order here or there that somebody is getting that is more than what they need? Possible. But in general, constraints don't lend themselves to shipping product to build inventory for anybody, at least certainly not at this part of the cycle.

I just want to spend a little bit more time on this unprecedented backlog visibility. So you mentioned it's a combination of this reversal in demand of the cyclical sectors that were affected, auto, industrial, consumer, that's coming back hard. Then you mentioned also the trade war that's been happening -- occurring for 2 years, which has kept inventory levels fairly low all throughout 2019, and we're entering -- we entered into 2020 with relatively low levels. So you have the trade war element of it where there are people on the ground in China starting to rebuild again because they feel that the trade war is subsiding. And then you talked about, obviously, kind of these secular drivers in data center, et cetera. So I was wondering if you could maybe just quickly kind of parse them out that -- and the supply constraints that's kind of leading to this there's once-in-a-kind-of-history type of situation?

So it's very difficult to parse out where the demand is coming from and for what reason, right? But if I dial the clock back a year ago, around this time, right, we felt very optimistic about 2020, given what had been taking place for 18 months on the trade and tariffs. Then the industry had a slow year in 2019 and a slow second half of 2018 as well. Now I don't think the rebound from trade and tariff is because the tariffs are going away. It's because manufacturers have adapted where their supply chains are going to be and have figured out how to take parts of their business, particularly the parts of ship into the U.S. into regions that are not under the trade and tariff regime. The demand fundamentally didn't change, but the demand got postponed because people didn't want to pay 25% tariffs or whatever on top of whatever the product price is. And so our customers were not able to sell all of their product for some period of time with the tariffs, they couldn't pass on the tariffs. And the demand, therefore, began to slow down. And people just said I'm going to wait to replace this or fix this or add that, et cetera. And that was all, we thought, at a point in a year ago of starting to respond back. Some adjustments have been made, other adjustments were in progress. And then, of course, kind of COVID came in and put a complete [indiscernible] on that whole thing. And so that took another 6-plus months of new demand uncertainty and declines in all of that. So I think that's what is all unraveling as both a combination of what COVID destroyed in demand, plus what was delayed demand as the tariffs or slowing down shipping the products, and all that is being corrected because of supply chains now for tariff products, people have adjusted out, the COVID demand issues are understood. And I think that pent-up demand is what we're seeing on the demand side of the equation.

Okay. But any holes in that potentially? I mean with kind of a resurgence of COVID in certain parts of the world, anything you're hearing about potential another round of factory shutdowns? We've had some commentary for certain companies in our space where COVID has impacted some of the order patterns. Just kind of the opposite view, if there are any concerns there that you're hearing at all?

None that we're seeing. And I think countries and regions have learned what they did wrong in the March, April, May time frame and the shutdowns that they did at that point in time. People have also recognized how to run factories safely in the current environment, how to put physical distancing and other preventive practices into the -- we do that in our own factories in what we've done. So I think the second wave that is happening as we speak will have a completely different flavor than what the first wave did. The first wave, nobody knew. No one had ever navigated a pandemic, nobody knew what to think. Overnight rules were changing in terms of what they're in. So I think this is a much more intelligent way. Certainly, the restrictions are there on consumers like you and I and certainly in parts of the world, like in Europe where the lockdowns are there. But I think people have also moved to how they buy, right, the need to go buy in retail has changed quite dramatically. And it was already there, it just got accelerated through the last 9 months or so. So we don't see an abatement in demand by what is currently taking place. We're obviously concerned, we're watching it. We watch many end indicators of what our customers are doing in their market beyond what they tell us in their demand segments.

Right. Okay. And so just on the capacity constraints and kind of the steps that you're taking, how do we think about, Eric, the CapEx that's going to be needed to increase capacity across the supply chain front and back end to get enough capacity to support this unprecedented level of demand?

Right. So if you look back the last couple of years, our CapEx has been extremely low. And we have hardly spent anything through the first 2 quarters of the current fiscal year that we're in. And then we increased our CapEx budget for fiscal '21 that will end in March. And we're taking steps today to get equipment into the facilities and CapEx is higher in the December and March quarter than what we've seen over the past several quarters. And that to some extent, that's going to continue into the next fiscal year. We haven't given any sort of guidance as of yet. But generally, we look at our CapEx and think, on average, it will be between 3% to 4% of revenue over the course of time. And there's going to be years where it's slightly higher than that, then years like we've had over the last 2 years that have been lower than that. But yes, I think we're making the appropriate steps to get the manufacturing capacity in place that we need, to support the demand that we are looking at, not this next quarter, but well into 2021.

And we're also being careful. If you remember the last cycle in 2017, we wanted to put the capacity increments in steps such that we don't get to a large overhang to where the capacity is now, well in excess of what is needed. And so we will get there prudently, responding to the demand, but also making sure that we're not setting ourselves up for a capacity overhang.

Right. And when you look at the assembly and test activity, we do some of it internally. We do some externally. We're working to increase the percentages that we do internally over the course of time, but it still gives us some flex capacity that if things go south in the industry over time, that we can still try to maximize our internal capacity and flex what we're doing from an outside subcontractor perspective.

And just remind me again, what -- how much is internal versus external for the front end and the back end?

So on front end, we do about 39% of wafer fab in-house. For assembly, we do about 47% in-house. And final test, we do about 55% in-house.

Okay. Got it. Perfect. So Eric, on the inventory situation, in the past calls, you'd mentioned distributor inventory being at kind of 15-year lows. And given kind of this level -- this type of -- kind of cycle that we're experiencing, how do you think about disti inventory? And then how do you also think about your own internal inventory targets?

Okay. So distribution inventory, as you said, has been quite low. If you look over the last 10 to 15 years, it's kind of ranged between 27 and 47 days. We ended the September quarter with about 30 days of inventory. So kind of near the historical low levels that we've seen and that is really in all geographies. And we'll provide more details on the specifics of where the December quarter ended in our February earnings call. But with the supply constraints and stronger demand that we're experiencing, distributors just may not be able to build inventory given the various constraints that are existing today that Ganesh talked about in his earlier comments. And then our internal inventory, we've been at about 120 days of inventory. That's where we ended September. And again, with the demand and supply constraints that we are seeing that we've kind of walked through here very challenging to build inventory. So that 120 days is kind of at the high end of what our historical targets that we've shared with investors is of 115 to 120 days. And I think we're well positioned, but capacity is tight right now, and I just think building inventory is not something that's going to happen in the short term.

So you have enough internal inventory you're saying to kind of meet this current level of demand? And then you'll build kind of cautiously to try to meet this? I'm trying to understand if there's going to be enough supply internally and externally to match this unprecedented level of demand that you're seeing.

Well, it depends, right? I mean those inventory indicators that I talked about, those are backward looking, right? And if you're looking at a significant growth year hypothetically, on a forward-looking basis, your days are much lower than what your backward-looking days are. And we're investing in capacity, working with our subcontracting partners to try to address those things, but it's challenging because the rest of the industry is doing the same thing.

Plus, I think the mix -- we have a high mix business, right, hundreds of thousands of product types, et cetera, in it. So the range of lead times I talked about, from as little as 4 weeks to as much as 40 weeks kind of reflects the fact that you're never going to get capacity in perfect mix. You're never going to get inventory in perfect mix. And so we'll always have things we're doing fine and have capacity and availability to go do. And other parts of the product line where we're going to be short and we'll have difficulty through much of this year in being able to catch up because of the constraints that are there in fab, assembly and test.

No, that's helpful to understand that. Eric, on the gross margin front, how has COVID impacted your gross margin and kind of going forward in terms of the additional cost? And then if you kind of exclude COVID, can you talk a little bit about some of the underlying gross margin trends you're seeing?

Sure. So I would say our operations team has really done an outstanding job of keeping our factories running during the pandemic. Back in the April-May time frame, we had very significant challenges in getting our employees to our factories in the Philippines, had similar issues at some of our subcontractors in Malaysia. And at one time, we had over 800 of our employees actually living in our factory in the Philippines. So it was quite challenging. And we had some COVID-19 specific related charges that we highlighted in our financial reporting back in the June quarter related to not being able to get our employees to the factories and productivity losses because of that. But since that time, we really haven't quantified those expenses. I'd say that they've been relatively minimal and just part of what we need to do to run our operations. So today, the larger impact we are experiencing really relates to cost increases in the supply chain and the -- just the overall supply constraints, which Ganesh commented on earlier. So I'd say the COVID impacts from a cost perspective are relatively minimal today and just part of what we're doing on an ongoing basis. I think the second part of your question was more kind of on referring to long-term gross margin and where we're heading, maybe address that?

Yes. So you moved your long-term gross margin guidance to 65%, citing the elimination of factory underutilization charges, better use of clean room space. So when you're targeting -- reaching this goal, could you talk a little bit about how you're moving it up to 65% and are there any further improvements that we could see beyond that?

Yes. So you mentioned kind of the biggest short-term driver of margin improvement is the elimination of factory underutilization charges. Back in the September quarter, that was about $12.2 million, and those will be significantly reduced in the December quarter. And we've said publicly that in the March quarter, we're really not expecting to have underutilization charges. So that's a good short-term driver of gross margin. And longer term, we've got ample space in our factories to grow our -- we've got the clean room space and so we can grow quite cost effectively as we add manufacturing equipment into the facilities. We're planning to insource, and we're working on this, more of assembly and test activities. We just mentioned that we do about 47% of our assembly in-house today. We'd like to take that to over 60% over time. We've not provided a time frame on that, but incremental investments, we'll get there. And on final test, we do 55% of the test activities in-house. We'd like to get that to be over 70% in-house over time. So these are all cost-effective investments that we can make with relatively short paybacks from an investment perspective and nice drivers of margin improvement. And then with the Microsemi acquisition, we inherited a number of smaller fabs and labs that we are going to consolidate and move into our larger factories over the course of time. We closed a fab down in Oregon in 2019. We've got another one in Santa Clara, California that we'll close this year, and we have plans for others in the future. So lots of things happening on the cost front to improve our overall cost structure and then on top of that, we've got a very disciplined product pricing strategy where we've always been disciplined on price, and that will allow those cost improvements to fall through to the bottom line and gives us confidence in getting to that 65% target over the course of time. And again, we haven't put a revenue level or a time frame on it, but continuing to do the blocking and tackling necessary on these various factors to get us there over the course of time.

Thank you, Eric, for that. That's helpful. Ganesh, if we could talk a little bit about the end markets that you're seeing some commentary there. The work-from-home related markets of computing and data center really surged in the first half of 2020. What is your view now? Are they returning to normal levels? Are they continuing at that pace? Are they kind of stabilizing? Are they decelerating? Any thoughts there in terms of that part of your business?

Yes. So you're right. There was a surge in the -- specifically, actually in the second calendar quarter, and then some of that surge carried over into parts of the third calendar quarter, although began to revert to more normal level. So I would say those parts of the business which benefited from the COVID surge have all reverted back to more normal trends at this point in time, whether that is in medical, whether that is in computing, servers and other infrastructure and all that. And I'm sure that as we look into a strong 2021, some of those could have the same strength applied to them as well. So I think the COVID surge is a onetime event. But the overall growth will apply to all those end segments as well.

Okay. Got it. And then in terms of any improvement in demand on the enterprise segment, from your vantage point, that's been kind of one of the sectors that has been weak because of COVID. Is that returning?

Not yet. And I think it's because people are still sheltered at home largely and anybody who can work from home is staying working from home. So I think what we would need is to probably get farther along on the vaccinations and the immunity that we need to allow more broad-based return-to-the-office policies. And that's probably not in the cards in the first half of this year. And so while there may be some maintenance level requirements that are going to be there, in general, I think the things that enterprise is going to need is going to lag. And so the parts of our business that are selling into that enterprise segment where it's dependent on people back in the office is going to lag. Obviously, anything for supporting workers from home is continuing on the basis that it's at.

And just a last few questions with the remaining time that we have. The Huawei issue -- the Huawei impact, can you maybe describe that? I think you're not including any Huawei revenue in the Q4 -- or accounted in Q4 guidance, pretty much like every chip company. Just any update on Huawei? If Huawei were to be taken off the ban, for instance, would you be able to support Huawei? Just remind us again what percentage of sales that customer is. And then just, Eric, kind of -- what's the kind of the book-to-bill ratio at this point? Any details there in terms of how it's been trending?

Let me take the Huawei part of it. So Huawei was about 1% to 2% of our revenue depending on the quarter, at the point that we stopped shipments to them, which was around the middle of September. There is no shipments taking place to them. And if they were to return, we don't know how and when they return. And in a constrained environment, we don't know what we could do to be able to respond to whatever that happens. We are working with the government on licenses and what might be doable, and does it make sense, but those are longer processes, and there's really nothing to report at this point in time. And when there is a change, we'll figure out what that means to us and then figure out what is our incremental growth. But in the meanwhile, with capacity largely spoken for, there's not an incremental revenue that Huawei would bring in, at least not in the short term, when we're constrained and everything is spoken for.

Yes, that makes total sense.

So the second part of your question was book-to-bill. I would say in the current environment, book-to-bill can be really a misleading indicator and hence, not meaningful to provide. Our strong bookings continued through the end of the year in all geographies, leading to record bookings, record backlog, which I think Ganesh mentioned in his opening comments. And the starting backlog for the March quarter is exceptionally strong compared to where it was at the beginning of the December quarter. But mind you, with longer lead times, a lot of the March quarter is already booked. And we will not expect strong turns activity in the March quarter as we normally experience. So I think that's really the commentary that we have on bookings.

But being less dependent on turns is better as that's more predictable, so...

It's more predictable, allows us to be much more efficient in our manufacturing. So yes, absolutely, more bookings and backlog is always good.

And we have a few minutes left. Just on the deleveraging, Eric, real quick, kind of where we -- or what are the plans this year say versus last year? And how do we think about that in the context of kind of supply constraints, unprecedented kind of bookings visibility. Any change that you could have?

So since we've acquired Microsemi, we've been really focused on taking debt off the balance sheet, and we've done a really good job of doing that in what's been a tough economic environment. We are really focused, continuing to be -- to get to an investment-grade rating. And we've probably got a year in front of us, plus or minus a little bit. And as we make progress to that as we've been doing every quarter, Steve and Ganesh have talked about maybe a change in our capital return strategy over the course of time. So as the leverage comes down, increasing dividends, potentially having stock buyback. Obviously, these are Board level type discussions, and we'll message that to The Street when appropriate, when decisions have been made. But we're making good progress on debt paydown. You will -- you should continue for us to do that. That's a high focus in the company, and the cash flow from the business is quite high.

All right. Fantastic. Thank you so much, Ganesh. Thank you, Eric. Thank you, everyone, for joining the call. We really appreciate it. Very insightful. Thank you.

Thank you, Raji.

Thank you.